Exclusive - Timothy Geithner Extended Interview Pt. 2

  • Aired:  05/21/14
  •  | Views: 121,692

Former Secretary of the Treasury Timothy Geithner expands on his view that bailouts were the only reasonable course of action in response to the financial crisis. (8:27)

>> Jon: OK, WELCOME BACK. SOWE'RE HERE, WE'RE TALKING WITH

FORMER SECRETARY OF TREASURYTIMOTHY GEITHNER.

SO, THIS GETS INTO OUR NEXTELEMENT, WHICH IS THE PERCEPTION

AMONGST THE ENGINEERS OF THEBAILOUT THAT THEY ARE BEING

UNREASONABLY CASTIGATED.

>> NO, NO I DON'T THINK IT'SUNREASONABLE.

IT WAS DEEPLY UNFAIR. EXCEPTRELATIVE DEAL --

>> Jon: WHAT THIS IS?

>> NO, LIKE THE RESCUE ITSELF,AT ITS CORE.

>> Jon: YES.

IS A FUNDAMENTALLY UNFAIRTHING.

>> Jon: CORRECT.

>> EXCEPT, EXCEPT RELATIVE TOTHE ALTERNATIVE OF LETTING THE

SYSTEM BURN DOWN.

>> Jon: BUT, BUT THAT SEEMS LIKEA FALSE CHOICE.

>> NO, IT'S NOT A FALSE CHOICE.

>> Jon: YOU DON'T BELIEVETHAT THE BAILOUT COULD HAVE BEEN

BONE AND ENGINEERED IN ANY OTHERWAY OTHER THAN THE WAY WE DID IT

OTHERWISE WE HAVE ADEPRESSION? SEE, THAT'S THE PART

THAT I THINK IS, IS --

>> I THINK, I KNOW, I KNOW IT'SHARD TO ACCEPT, EXCEPT THERE

IS BEEN A GREAT HISTORY OFMISTAKES AND ERRORS OF COUNTRIES

TRYING TO HAVE IT ALL WAYS DO ITDIFFERENTLY WHICH HAVE

BEEN DRAMATICALLY MORE DAMAGINGFOR THEIR COUNTRIES.

NOW, THE IDEA THIS COULD HAVEBEEN A MUCH STRONGER RECOVERY

AND LESS DAMAGING IS MOSTLYABOUT NOT THE DESIGN OF THE

RESCUE BECAUSE THE RESCUE WASVERY EFFECTIVE, IT DID THE

ESSENTIAL THING, MUCH MOREEFFECTIVE --

>> Jon: BUT DIDN'T IT JUST

REINFLATE A TOXIC SYSTEM?

>> NO.

>> Jon: THE BANKING SYSTEM WASTOXIC, YES.

>> OH ABSOLUTELY. IT WAS THEWILD WEST.

>> Jon: AND WE PUT A TREMENDOUSAMOUNT OF MONEY BACK INTO IT TO

TRY AND MAKE THEM WHILE KIND OFIGNORING THE HOME OWNER SECTION?

>> WELL, THERE'S SOMETHINGTO THAT. BUT, LET ME GIVE YOU A

SLIGHTLY DIFFERENT PERSPECTIVEON THAT. IN EFFECT WHAT HAPPENED

>> Jon: ALL RIGHT(LAUGHTER)

>> WE LET THIS CRISIS IN SOMEWAYS BURN TOO HOT, AND I KNOW

PEOPLE DON'T FEEL THIS, DON'TSEE IT, BUT, IN EFFECT, THE

REASON WHY THIS WAS SO SEVERE ISBECAUSE WE LET THAT PANIC GET TO

MOMEMTUM. AND, IN SOME WAYS,WE ALLOWED TOO MUCH FAILURE,

AND CRUSHING FAILURE ACROSS THESYSTEM. NOW, AFTER, AFTER WE

BROKE THE PANIC, WE DID FORCETHEM TO RAISE A BUNCH OF

CAPITAL, PAY BACK THE TAXPAYER,UNWIND ALL THOSE PROGRAMS.

>> Jon: WELL, LET'S TALK ABOUTFORCING THEM. BECAUSE

I THINK THAT'S AN INTERESTINGWAY OF PHRASING IT BECAUSE WHAT

WE DID IS WE GAVE THEM THATMONEY AND THEN WE OPENED UP A

DISCOUNT WINDOW THAT THEY COULDGO TO AND BORROW AT 0%, TURN

AROUND AND BUY TREASURIES AT 3%AND BASICALLY CREATE --

>> NO, NOT QUITE RIGHT. LET MESAY IT SLIGHTLY DIFFERENTLY.

>> Jon: OKAY(LAUGHTER)

>> WHAT WE DID, WHAT WE DID --

>> Jon: THEY GAVE US$100, AND WE GAVE THEM $103.

>> LET ME TRY A LITTLEDIFFERENTLY.

>> Jon: ALL RIGHT.

>> WE DID WHAT YOU HAVE TO DO INA PANIC, OK, WHICH IS FOR A

PRICE, FOR A FEE -->> Jon: 5%.

>> WELL SOMETIMES IT WAS CHEAPERTHAN THAT, SOMETIMES IT WAS

MORE EXPENSIVE THANTHAT. WE GAVE THEM A SET OF

PROTECTIONS WHICH WE MADETHEM PAY FOR AND WE MADE THEM

PAY THE TAXPAYER BACK AND THETAXPAYER EARNED A

PROFIT ON THOSE PROGRAMS WHICHIS GOING TO BE WELL OVER

$100 BILLION.

>> Jon: BUT, THAT IS TOSUGGEST THAT THE DAMAGE TO OUR

ECONOMY WAS MERELY THE TAXPAYERIS ON THE HOOK FOR --

>> NO, IT'S NOT TO SUGGESTTHAT. IT'S JUST TO SUGGEST

THAT IF PEOPLE PERCEIVETHIS TODAY STILL AS IF WE WENT

AND GAVE THEM MONEY THAT THEYWERE NEVER GOING TO SEE AGAIN

THAT WE DIDN'T NEED TO DO. ANDTHAT'S A DEEP MISPERCEPTION.

>> Jon: WELL, I DON'T KNOW IFTHEY PERCEIVE IT THAT WAY, BUT

HERE'S, HERE'S WHERE I THINKTHE, THE GENERAL UNFAIRNESS. SO,

HERE'S WHAT WE DID FOR THEBANKS -- $245 BILLION FOR

THE BANKS AND THE FINANCIALINSTITUTIONS. $67.8 BILLION FOR

A.I.G., WE BOUGHT SOME OF THE$18.6 BILLION IN TOXIC ASSETS.

A.I.G. GOT ANOTHER $112.8BILLION IN CREDIT.

BEAR STEARNS'S COMMITMENTS WERE$30 BILLION TO INCENTIVIZED JP

MORGAN TO PURCHASEIT. FDIC TREASURY FED COMMITMENT

WAS $239.9 BILLION TO SHORE UPCITIBANK --

>> WELL, IT'S ACTUALLY MUCHWORSE THAN THAT.

>> Jon: AND THEN THERE'S,WELL, I'M GETTING TO THOSE.

AND THEN THE ZIRP PROGRAM,WHICH WAS THE DISCOUNT WINDOW,

APPARENTLY THEY'VE ESTIMATEDCOSTS SAVERS AND INVESTORS

$350 BILLION A YEAR.THAT'S TO THE BANKS.

YES?

IN PART?

>> IN SOME WAYS, IF YOU LOOK ATTHE FULL SCALE OF THE MAGNITUTED

OF THE RESCUE -->> Jon: IT'S EVEN MORE THAN

THAT.

>> IT'S EVEN MORE THAN THAT, BUT--

>> Jon: I RAN OUT OF ROOM ONTHAT PAPER.

>> RIGHT.

>> Jon: SO HERE'S WHAT WE DIDFOR FANNIE AND FREDDIE.

$187 BILLION TO TAKE OVERCONTROL AND WE ALSO BOUGHT UP

SOME PART OF $18.6 BILLION TOXIC

ASSETS PROGRAMS WHICH BASICALLYALSO HELPS THE BANKS

BECAUSE THEY HAVE ALSO ASSETSTIED UP IN FANNIE AND FREDDIE

AND FREDDIE AND FANNIE AREBUYING THEIR MORTGAGES.

HERE'S WHAT WE DID FOR THEHOMEOWNERS, $6 BILLION.

SPENT FOR FORECLOSURE AVOIDANCE.

>> CAN I GIVE YOU A DIFFERENTMATH?

>> Jon: NO.

NOT YET.

(LAUGHTER)(APPLAUSE)

$6 BILLION FOR FORECLOSUREAVOIDANCE OUT OF THE

$45.6 BILLION THAT WAS COMMITTEDTO THEM FROM THE TARP BECAUSE

THE TARP HAD IN IT THAT YOU HADTO HELP THE HOMEOWNERS.

$3.79 BILLION FOR HOUSINGFINANCING AGENCY INNOVATIONFUND,

THAT WAS OUT OF $7.8 BILLION.AND $60 MILLION INVESTED

OUT OF $8 BILLION COMMITTED FORF.H.A. REFINANCING

PROGRAMS. THE REFINANCE PROGRAMSHAVE BEEN A DISASTER. SO,

IT'S BEEN PORTRAYED THAT THOSE-- YOU KNOW, YOU USE THE PHRASE

"SOME PEOPLE WANTED OLDTESTAMENT JUSTICE."

>> WE ALL DID.

>> Jon: WELL, I DON'T THINK WEDID BECAUSE I THINK THAT OLD

TESTAMENT JUSTICE CONNOTESVENGEANCE.

>> NO, I DON'T THINK SONECESSARILY.

>> Jon: IF YOU SAID TOSOMEBODY YOU WANT, THAT STRIKES

ME AS EYE FOR AN EYE.

>> WELL, IT'S JUST SHORTHAND FORMAKING PEOPLE ACCOUNTABLE,

FOR SOME MEASURE OF JUSTICE. BUTCAN I --

>> Jon: OK, LOOKING AT IT ONPAPER, THOUGH, CAN YOU

UNDERSTAND HOW -->> OH, OF COURSE.

>> SOMEONE WOULD GO YOU DID

EVERYTHING YOU POSSIBLY COULD TO

REINVIGORATE AN INDUSTRY THATHAD UTTERLY CRATERED THE WORLD

ECONOMY BECAUSE OF ARROGANCE ANDMALFEASANCE -- NOT ACCIDENT.

THIS WAS NO ACT OF GOD.

THIS WAS TOXIC SUBPRIMEMORTGAGES, BUNDLED INTO

DERIVATIVES, SOLD MANY TIMESKNOWINGLY, RATED HIGHER THAN IT

SHOULD HAVE BEEN.

THE REASON WE DIDN'T BAIL OUTTHE HOMEOWNERS WAS SO-CALLED

MORAL HAZARD.

>> LET ME GIVE YOU SLIGHTLYDIFFERENT MATH BECAUSE THIS IS

IMPORTANT. AND THANKS FORASKING.

>> Jon: NO, NO I THINK IT ISIMPORTANT.

>> SO, ALL THOSE THINGS YOULISTED THAT WENT TO THE

FINANCIAL SYSTEM CAME BACK TOTHE TAXPAYER WITH A PROFIT.

NOW, IF YOU LOOK AT THE OTHERSIDE OF THE BALANCE SHEET, THE

PROGRAMS THE PRESIDENT SUPPORTEDTHAT WENT DIRECTLY INTO THE

HANDS OF THE AMERICAN PEOPLE,CHECKS THAT WERE WRITTEN TO THEM

THROUGH TAX CUTS OR BENEFITSOR THE HOUSING PROGRAMS WERE

$1.4 TRILLION. LARGERTHAN WHAT ROOSEVELT DID

IN THE GREAT DEPRESSION INRELATIVE TERMS.

>> Jon: BUT, LET ME CHANGE THEMATH ON THAT VERY QUICKLY.

>> SURE.

>> Jon: BECAUSE YOU GAVE THEBILLIONS OF DOLLARS DIRECTLY TO

THE BANKS FOR THEIR TOXICASSETS, YES?

>> NO, THAT'S NOT A GOOD WAY TOTHINK ABOUT IT.

(LAUGHTER)WHAT WE DID WAS TO MAKE

SURE - IT'S NOT TRUE. WHAT WEDID WAS TO MAKE SURE THERE

WAS NOT A RUN ON THE SYSTEM LIKEIN THE GREAT DEPRESSION WITH

PEOPLE LINED UP ACROSS THECOUNTRY UNABLE TO TAKE THEIR

SAVINGS OUT WITH THE RISK OFDEVASTATING MASSIVE

UNEMPLOYMENT.

AND, THAT'S WHY WE DID VERYEFFECTIVELY.

WE DIDN'T DO IT FOR THE BANKS ORTHE BANKERS.

>> Jon: I'M NOT SAYING YOUDID IT FOR THEM, BUT YOU DID IT

DIRECTLY TO THE PEOPLE WHOSCREWED IT UP.

IT WENT TO A.I.G. AND THE BANKS.

>> NO, NO, WE DID IT, AND THETAXPAYER GOT ALL THAT BACK WITH

SUBSTANTIAL PROFIT.

>> Jon: BUT, THAT'S NOT MYPOINT.

MY POINT IS IT WAS TARGETED --YOU'RE SAYING THE AMERICAN

TAXPAYER. WHAT I'M SAYINGIS THE HOMEOWNERS OWNERS

UNDER WATER, THE INDIVIDUALSWHOSE

ASSETS ARE THE ONES BEINGCONSIDERED TOXIC WHOSE MORTGAGES

ARE SUBPRIME, WHO CAN LEASTAFFORD IT, WHO ARE GOING TO GET

FORECLOSED ON, THAT'S NOT THESAME.

THAT'S LIKE SAYING RATHER THANGIVING THE MONEY DIRECTLY TO

A.I.G. OR DIRECTLY TO CITIGROUPOR DIRECTLY TO THOSE PEOPLE, YOU

JUST DID A BROAD-BASED TAXCUT FOR CORPORATIONS.

>> NO.>> Jon: IT'S NOT TARGETED FOR

WAY THAT IT'S TARGETED FOR THEBANKS.

>> NO, I DON'T THINK THAT'S AGOOD WAY TO THINK ABOUT IT.

FIRST OF ALL, REMEMBERNOTHING WE DID FOR THE

FINANCIAL SYSTEM WAS FOR THEBENEFIT OR THE INTENTION OF

REWARDING THE ARSONIST.IT WAS BECAUSE, IF YOU LET THAT

BURN AND CONSUME THE COUNTRY, ITWOULD HAVE BEEN MUCH WORSE FOR

THE RESPONSIBLE HOME OWNER, THEAVERAGE PERSON WHO WAS GOING TO

LOSE THEIR JOB OR BUSINESSOR HOME, AND IF YOU WORRY OR

YOU DOUBT THAT REALITY, THENJUST GO BACK AND

LOOK AT NOT JUST THE GREATDEPRESSION BUT LOOK WHAT IT FELT

LIKE IN THIS COUNTRY IN THEFALL OF 08 WHEN WE WERE AT THE

EDGE OF COLLAPSE IN THAT CONTEXTAND LOOK AT THE HISTORY

OF FINANCIAL CRISES IN THE 100YEARS AFTER

THE GREAT DEPRESSION. NOW YOUSAY, YOU SAY --

>> Jon: BUT YOU ARE CONTINUINGTO PLACE THE ENTIRE ONUS OF HOW

THIS RECOVER WENT ONBASICALLY AN EXTORTION

SCHEME, BASICALLY THEIRIDEA IS THEY COME TO YOU

AND THEY SAY IF YOU DON'TGIVE US A TREMENDOUS AMOUNT

OF MONEY, YOU WILL ALL DIE.

Loading...